NIAID botches Bayh-Dole

This will be a bit of a long ride. Buckle up.

In 2011, the US Supreme Court ruled in Stanford v Roche that the Bayh-Dole Act does not vest title to inventions made in federally supported work with the nonprofit organization that receives the money.

Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.

An “invention of the contractor” is one that the contractor has acquired:

And “invention owned by the contractor” or “invention belonging to the contractor” are natural readings of the phrase “invention of the contractor.” As we have explained, “[t]he use of the word ‘of’ denotes ownership.”

Bayh-Dole is limited to inventions contractors acquire:

The Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have. Such a provision makes sense in a statute specifying the respective rights and responsibilities of federal contractors and the Government.

Congress signals its intent to make major changes by addressing those changes expressly:

We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly—not obliquely through an ambiguous definition of “subject invention” and an idiosyncratic use of the word “retain.”

In 2021, the NIH’s National Institute of Allergy and Infectious Diseases published an article in its Funding News newsletter, “Insights Into Inventions–Reporting, Bayh-Dole, and More.” In a breezy style, the article encourages inventors working with NIH funding to disclose their inventions to their institution’s technology transfer office. Inventors are encouraged to “familiarize” themselves with Bayh-Dole. Fine, so far–but here’s what they write:

In a nutshell, it [Bayh-Dole] states that federal funding recipients (i.e., those receiving grants, cooperative agreements, or contracts) have the right to retain title to inventions made under federally funded research but must comply with regulations (37 CFR 401 et seq.) to ensure the timely transfer of the technology to the public sector.

This nutshell is broken. Bayh-Dole allows nonprofit and small business contractors to retain title to inventions that the contractors have acquired, with the condition that they comply with the conditions set forth in 35 USC 202(c)–that is, the provisions that agencies are required to use in a patent rights clause in every funding agreement unless they can justify a different patent rights clause. There’s nothing that says the statute requires the regulation to be the law. Actually, things go the other way–where there’s a disagreement between the statute and regulations, the statute governs.

For example, here’s Bayh-Dole on when a contractor must file a patent application on a subject invention to which it has elected to retain title (35 USC 202(c)(3));

That a contractor electing rights in a subject invention agrees to file a patent application prior to the expiration of the 1-year period referred to in section 102(b) . . . .

Section 102(b) concerns public disclosures of an invention as a bar to patentability. So, Bayh-Dole requires a contractor to file a patent application prior to a patentability bar created by public disclosure–not prior to public disclosure (which generally blows patent rights in most foreign jurisdictions).

But here’s the regulation (37 CFR 401.14(c)(3)) (my emphasis):

The contractor will file its initial patent application on a subject invention to which it elects to retain title within one year after election of title or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained in the United States after a publication, on sale, or public use.

One year after election of title is not anywhere close to the same as the end of the one-year grace period after public disclosure. Bayh-Dole was amended in 2011:

Section 202(c) of title 35, United States Code, is amended— . . .

in paragraph (3), by striking ‘‘any statutory bar date that may occur under this title due to publication, on sale, or public use’’ and inserting ‘‘the expiration of the 1-year period referred to in section 102(b)’’.

That was twelve years ago–and NIST hasn’t bothered to get around to changing the standard patent rights clause to conform to the statute. We might gather that Bayh-Dole just is not that important to NIST, or that NIST is sloppy, or that NIST doesn’t want to make the change and so stonewalls revising the patent rights clause. Whatever–the statute governs, not the CFR.

But what about the statement that recipients

have the right to retain title to inventions made under federally funded research

Well, that is what the law says–but NIH does not mean “retain” in the way the US Supreme Court ruled, that to “retain” something you need to already have got it. Here’s the article:

Under the Bayh-Dole Act, your institution as the grant recipient owns rights to the NIH-funded invention and has the right and obligation to pursue patent protection.

This statement is exactly what the Supreme Court rejected–Bayh-Dole does not vest any invention rights in the “institution.” That an invention might be “funded” by NIH money, or even made in work supported by NIH funding (very different concepts–the latter is Bayh-Dole, the former is made-up snootiness), has nothing to do with Bayh-Dole’s control of initial rights in an invention arising in federally supported work. Bayh-Dole kicks in when a party to the funding agreement owns an invention arising in the work that the funding agreement funds (see 35 USC 201(b) for the definition of funding agreement–especially that second sentence). Only when a contractor owns the invention (and the invention meets the other criteria) does the invention become a “subject” invention.

The NIH here is not merely playing loose and incompetently with its account of Bayh-Dole, it is repudiating the Supreme Court’s opinion in a landmark case that deals exactly with this point of vesting. Smells like contempt, really. A breezy, brash contempt.

The article breezes on, discussing how an inventor might get rights if a recipient institution does not choose to file a patent application:

However, if it chooses not to, you (the inventor) may be allowed to—with NIH approval—submit a patent application to the United States Patent and Trademark Office (USPTO). This is called an “Inventor Waiver.” Alternatively, your institution must waive the invention to the government.

This is a confused, mixed up gust of words. Can we survive an closer look? Let’s try. I know. But we have to.

If a contractor decides not to file a patent application, then Bayh-Dole provides that the federal agency has the right to request title. Here’s the last part of 35 USC 202(c)(3):

the Federal Government may receive title to any subject inventions in the United States or other countries in which the contractor has not filed patent applications on the subject invention within such times.

So if the contractor doesn’t file–or chooses not to file–the government has a right to receive title–the contractor must assign title to the government upon request. But here the NIH advises the inventor that the inventor can file a patent application, if the NIH approves, under an “Inventor Waiver.” How could this be? Filing a patent application does not give the inventor back ownership of the invention. No, it doesn’t work, and it’s not Bayh-Dole. Here’s the bit that the NIH is misconstruing–35 USC 202(d) (my emphasis again):

If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.

Wait–that’s a contractor having got title, decides it doesn’t want title. Has nothing to do with filing patent applications. If a contractor decides it doesn’t want to keep title, then according to Bayh-Dole–35 USC 202(c)(2)–

the Federal Government may receive title to any subject invention in which the contractor does not elect to retain rights or fails to elect rights within such times.

So the bit in (d) is about what happens if a contractor does not want to keep the title to a subject invention that it has got, but rather than assign the invention to the government, the inventor asks the government to waive its right to receive title in favor of the inventor receiving title back from the contractor and filing a patent application. Left out of all this is how the government treats the inventor, once the inventor has got title (again) and both the contractor and the federal agency have passed on title. Is the invention still a subject invention, or does it pass out of the scope of Bayh-Dole?

Unbelievably, there is a way to answer this question. Bayh-Dole applies after a contractor has obtained an otherwise conforming invention (is or may be patentable (or a plant variety), made within the scope of the funding agreement). Thus, if an inventor is not a party to the federal funding agreement, then the inventor’s invention is not within the scope of Bayh-Dole, even if the invention is within the scope of that funding agreement. You may be tempted to say this is a mistake, or not what “was intended” and you might then decide to make up the proper law on your own, ascribe your private law to the intent of Congress, and make inventors cough up their inventions anyway. But don’t go there. The absence of a claim is the policy of the law. And it is a reasonable policy–and perhaps it is reasonable because it keeps Bayh-Dole constitutional. In a nutshell, because that’s how the NIH operates with regard to Bayh-Dole–nutso–the Constitution grants to the Congress the power to secure to inventors for limited times the exclusive right to their discoveries. Congress does not have the power, then, to force inventors to give up those exclusive rights. States might have that power, but Congress does not. I know, I know–Congress has made short-lived vesting statutes in the past for atomic energy inventions and the Advanced Technology Program, but it’s a nutshell, so work through that. Truman’s EO 10096 is potentially unconstitutional–there were worries–as is the federal government disposing of inventions it owns via exclusive license or assignment or just letting contractors own–more worries, now mostly forgotten, not adjudicated.

This paragraph (d) then covers one prong of a contractor’s decision with regard to keeping title to an invention it has got, but (d) does not deal with the prong of a contractor not getting title in the first place. Under the Nixon patent policy, codified by the Federal Procurement Regulation, a contractor was required to have a patent agreement in place to “effectuate” the requirement that the government would acquire title to any invention made under contract unless it decided otherwise. The FPR patent rights clauses did not care what the arrangements were between a contractor and its employee-inventors, so long as both the contractor and the employee-inventors agreed to assign to the government until the government decided not to require assignment. Follow? The FPR did not require inventors to assign to their contractor-employers–it required contractor-employers to require inventors to agree to assign to the government if the employer did not require the inventor to assign to the employer.

Yes, company employers might insist on a patent agreement that requires assignment to the company, but universities were (and ought to be yet) a different matter. Faculty might be granted freedom of research and publication (many universities have such policies in place, and written to be fundamental policies and so not breezily displaced)–and when so, then assignment of inventions might be, by policy, strictly voluntary (and for a long while, in most universities, it was, unless a faculty member agreed to give up research and publication freedom and accept a university assignment to conduct some program of research). The FPR navigated all of this variation in practice by requiring a patent agreement between employer and employee that covered the government’s interest in inventions and remained silent about whatever other arrangements an employer and employee might have with regard to inventions arising in federally funded work.

But Bayh-Dole displaced the FPR, and did not require a patent agreement, and the Supreme Court looked for such a requirement and did not find it–not implied vesting, not a right to “take” title, not a misuse of “retain” to mean “take” or “watch as it vests,” not a right of first refusal, not a restriction on who an inventor could assign to other than the contractor and the government. And in 1983, President Reagan changed executive branch patent policy so that federal agencies were to apply Bayh-Dole-like provisions to all contractors. Not only did Bayh-Dole “reverse the presumption of title” (a political nonsense expression, but may as well use it) but Bayh-Dole also eliminated the standing requirement in federal patent rights clauses that inventions arising at nonprofits and made in work with federal support would be assigned to the government unless the government decided otherwise. Bayh-Dole even eliminated a requirement for a patent agreement between the contractor-employer and the would be employee-inventor. Again, this appears to be the intent of Congress–and should be read this way as long as it is reasonable (and it is), rather than as a mistake to be fixed by personal assertion of being more smartipants than Congress and so have self-legislating powers. But you know better, wouldn’t do that. Good.

Now, if we turn to the patent rights clauses in 37 CFR 401, there are three default patent rights clauses and one clause for a standing exceptional circumstance involving nuclear research at the DOE. These have been conflated by NIST into just two clauses, one at 37 CFR 401.14 (for small businesses, for nonprofits, and the DOE nuclear stuff) and the other at 37 CFR 401.9 (for inventors as contractors). The 401.14 clause adds a “written agreement” requirement that’s not in Bayh-Dole. Just pulls it in from the FPR and screws around to try to make it work. According to (f)(2), contractors are to require certain of their employees to make a written agreement “to protect the government’s interest” (as the heading for the section has it):

The contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees,

That is, the contractor must take this action with respect to the government’s interest–not the contractor’s interest–

to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the contractor each subject invention made under contract in order that the contractor can comply with the disclosure provisions of paragraph (c) of this clause,

Big mouthful here. Key point is that the disclosure requirement is limited to subject inventions, and as you know now, an invention is a subject invention only when it is owned by a contractor, that is, by a party to the funding agreement. An inventor’s obligation to disclose promptly arises after the conforming invention has been acquired by the contractor (by assignment or perhaps by an argument based on equity, as in having assigned the inventor to invent). Yes, you see Bayh-Dole’s policy insight here. The patent rights clause does not force inventors to assign their inventions to the contractor so that the federal government can more easily get at them via Bayh-Dole.

to assign to the contractor the entire right, title and interest in and to each subject invention made under contract,

NIST recently added this bit, trying to turn Bayh-Dole into the vesting statute that the Supreme Court said it wasn’t and might be found unconstitutional if it were, given the lack of protections for inventors and other “third parties.” But it doesn’t work–contractors are to require their would be employee-inventors to assign to the contractor everything–not just title–to inventions that the contractor already has got ownership of. At best, this is a paperwork requirement–you must assign what you have formerly assigned. The NIST drafting is also sloppy–a subject invention is necessarily, by definition (35 USC 201(e)) an invention “made under contract.” NIST in repeating it here evidences that even NIST rejects the Supreme Court’s reading of “subject invention” and insists that any invention made “under contract” must be a subject invention–even though the Supreme Court expressly held otherwise, on pain of finding Bayh-Dole “deeply troubling” if not unconstitutional.

and to execute all papers necessary to file patent applications on subject inventions and to establish the government’s rights in the subject inventions.

Now, if a contractor has made an inventor assign away all right, title, and interest (see above) to a subject invention, then how does this last requirement make any sense at all? What papers would an inventor sigh to “establish the government’s rights” in inventions owned by the contractor-employer? Right! None. It’s the empty set if inventors have to assign all rights. An inventor could convey nothing–not title, not a government license, nada. The provision makes sense only if, similar to the FPR, the inventor is also a contractor and has standing independent of the contractor to deal with the government.

And now perhaps you get it. The effect of the (f)(2) requirement–and its odd cascade of the federal agency requires the contractor to require the inventor–is to have the contractor make any employee-inventor a party to the funding agreement by flowing down certain key duties in the patent rights clause that is integral to the funding agreement. That’s what the “written agreement” does (see 35 USC 201(b) again to see how a contractor may expand a funding agreement to include additional parties, and see 35 USC 201(c) for the equation of “party to a funding agreement” with “contractor.”)

If a contractor complies with 37 CFR 401.14(f)(2)–none do, as far as I can tell (but it is a federal contract stipulated by regulation so maybe they have to, in a godfather sort of way, whether they act to comply or not)–then employees become contractors in their own right, and as contractors, when they invent, why they own their inventions by right, and these inventions, if made under federal contract, are–whoa–subject inventions. But these are not the subject inventions of their employer-contractor. These are their own subject inventions–they are the contractor (compare, subcontractors as contractors–37 CFR 401.14(g). Now the written agreement requirement at (f)(2) makes sense. Inventors agree, as they become parties to the funding agreement, to execute documents to establish the government’s (not their employer-who-doesn’t-matter-for-this-part-because-the-employer-was-required-to-require-the-employee-to-become-a-contractor-as-well) interest in subject inventions of the inventor.

So now we can look at the inventor patent rights clause at 37 CFR 401.9. Here it is:

Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made under a funding agreement with a small business firm or nonprofit organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to a small business firm contractor under paragraphs (d)(1) and (3); (f)(4); (h); (i); and (j) of the clause at § 401.14.

According to Bayh-Dole (35 USC 202(a)), all federal agencies must allow a small business or nonprofit contractor to retain title to any subject invention, providing the contractor meets all the conditions–disclosure, election to retain title, and the like. 401.9 addresses one situation anticipated by 35 USC 202(d)–a contractor-employer obtains title and then decides no, and rather than being forced by the bad decision to assign to the government, the government can agree to allow the contractor to assign back to the inventor, but the inventor must accept a subset of the patent rights clause–

(d) government may request title
(1) for failure to disclose
(3) in a foreign country, for failure to file a patent application in that country
(f)(4) include a federal funding notice in patent
(h) reporting on utilization
(i)  preference for US industry in exclusive licensing in the US
(j) march-in rights

401.9 sets up inventor-contractors as small business contractors, but with fewer restrictions. In particular, inventor-contractors are not expressly required to file a US patent application. Again, this is consistent with federal law. Inventors are not required to use the patent system. Nor does Bayh-Dole require inventors to use the patent system. Nonprofit and small business contractors are required to use the patent system, but only after they have worked out some deal with inventors (again, Bayh-Dole does not make them take ownership, or vest that ownership with them so they can avoid the bother of working out a deal with inventors).

Now we can see the variations on the theme:

(A) If an inventor makes inventions within the scope of a federal funding agreement but is not a party to the funding agreement, those inventions are not subject inventions, and under Bayh-Dole neither the contractor-employer nor the federal agency has any right to those inventions. That’s nice. That’s good policy. That’s essential to keep Bayh-Dole constitutional.

(B) If a contractor-employer makes an inventor a party to the federal funding agreement, then that inventor has standing under 202(a) like any other small business contractor, but with fewer restrictions. The federal agency must check in with the employer to confirm that there’s no private deal under which the inventor has agreed to assign to the employer, but other than that, the inventor has a subject invention, does not have to file a patent application (in the default case), but does have to disclose timely, elect to retain title, include a federal funding notice in patents, and the like.

(C) If a contractor acquires an invention made under a federal funding agreement from its inventor(s), and then regrets it and does not want title, the federal agency may agree to allow the contractor to re-assign the invention to the inventor(s) rather than demand assignment to the government.

In any case where the invention has become a subject invention and ends up being owned by the inventor, Bayh-Dole applies, but with fewer restrictions on the invention than for other small business contractors. If the invention never is a subject invention, then it is outside Bayh-Dole and the standard patent rights clauses, and that’s the policy not a mistake.

Could Congress have done something different? Like, say, defining “subject invention” as any invention made under a funding agreement, without bothering with ownership of that invention, as the FPR had done? Sure, if Latker and his folks weren’t gaming the system and being such doofs at drafting and trying to avoid drafting a law that was obviously unconstitutional or at least unappealing. But they were gaming the system, and being incredibly, um, political about it, and didn’t do a very good job because, they could not be so open with what they were trying to do. As Howard Bremer put it in a talk in 1992, the 1984 amendments to Bayh-Dole “removed many of the restrictions which had been built into PL 96-517 [Bayh-Dole] for the purpose of political expediency.” Yes, expediency as the great political virtue.

Okay, we are long way around to the NIH’s garble of Bayh-Dole. If an invention becomes a subject invention, then even if inventors get it back on reassignment, it’s still a subject invention–but it is subject to the patent rights clause at 37 CFR 401.9, not the one at 37 CFR 401.14. This is an exception to the requirement–in Bayh-Dole, 35 USC 202(c)(7)(A)–that a nonprofit assignment of a subject invention must include the nonprofit’s patent rights clause. It all works, though the wording is clunky and the design of the law still has the residuum of political expediency.

But the NIH isn’t done. Here’s what it says about inventors with rights:

You can start by filing an inexpensive provisional application, but you will need to follow through with a nonprovisional U.S. or international (PCT) application within 10 months of the provisional application’s filing date.

Under 37 CFR 401.9, inventors don’t have to file US patent applications. That requirement is visibly skipped (that would be (d)(2)–but only (d)(1) and (d)(3) are required). So the NIH gives wrong advice here, too. Or, rather, they misrepresent the law. Is it negligence? Incompetence? Malice? It would be interesting to find out.

We go on to the bitter end:

As we mentioned above, the Bayh-Dole Act requires that all government-funded inventions be reported to the awarding federal agency; in your case, NIH.

But Bayh-Dole does not require such, and you see it now. Bayh-Dole requires reporting of subject inventions, not all inventions. And “government-funded” is wrong. First there’s the “work” or call it the “project.” Then there’s government funding for some part of that project, maybe all–“in all or in part” (35 USC 201(b)–really go read it already). In that broad project, any invention that arises, is “under contract” and when it is owned by a party to that contract becomes a subject invention, subject to the disclosure requirement when the invention has become known to the contractor’s patent personnel (yeah, 35 USC 202(c)(1)). It does not matter whether the invention was “government-funded.”

What matters is that the invention arose in a project that had at least some government funding. A contractor could spend government money on an invention and that invention may still be outside the scope of the government-funded project. It could be a misuse of funds, but it does not mean that the scope of a project follows government money everywhere like some sort of tick or virus or halitosis. Bayh-Dole’s implementing regulations make this point at 37 CFR 401.1. NIST wants to get rid of this guidance, so read it while you can. 401.1 provides that determining a subject invention is not necessarily a matter of accounting–if government funds are spent on an invention outside the scope of the contract and the contracted work still gets done, then no matter. Similarly, chronology does not necessarily matter.

Federal funding could come early in the project, or late, or be a part of the funding all along, or fund the whole kaboodle. What matters is whether the invention is within scope of the project that federal money at some point in time also supports. So if the project a university sets about is to discover drug candidates and develop the best of these into commercial products, and the government funds the discovery part, and the university adds by assignment via an exclusive license for all substantial rights in an invention some company commercialization partner, that company is by the operation of federal law a party to the university’s funding agreement and any inventions that get made, when owned by the company or university, all other things compliant, become subject inventions.

“Government-funded invention” and “invention made in work funded at least in part by the government” are fundamentally different concepts. One cannot as a sort of shorthand substitute for the other. It’s slop. Or incompetence. Or something else embarrassingly bad.

Are we done yet? Almost! Can you hold it for just a few more miles?

The NIH writes that contractors must comply with the CFR regulations of Bayh-Dole:

to ensure the timely transfer of the technology to the public sector

But this too is not Bayh-Dole. For starters, the contractor is in “the public sector”–the nonfederal “sector” if you wish. Furthermore, the subject of Bayh-Dole is not a “technology” but an “invention.” (Arg–go see how NASA wrestles with “new technology” vs a mere “invention”). The concern with Bayh-Dole is use of the patent system to promote “utilization” of an invention–and with limited rights in any patent issued under Bayh-Dole’s regulatory regime. If the contractor is a small business, then there is no need whatsoever to “transfer” anything. A contractor may fully satisfy Bayh-Dole by utilizing its invention and making the benefits of that use available to the public on reasonable terms. Zero “transfer of the technology.” No licensing necessary.

Hold on! Don’t pee in the seat!

Bayh-Dole is about requiring the patent system to be used in some ways and not others–unexpected ways, perhaps. Use a right to exclude all others to promote the use of an invention, use a right to exclude competition to promote free competition, use a right that does not require an invention to be worked at all to work the invention. Think about that as policy, after we find a place to stop. The point is, Bayh-Dole expects that if one uses the patent system, the purpose is to achieve practical application–utilize the invention, with benefits available to the public, on reasonable terms. Transfer is one way to do this. But there are others. The focus should be on utilization. Even here, stuff gets stupid, because the compliance bits of the standard patent rights clause have next to nothing to do with either utilization or transfer and have instead to do with administrative paperwork left over from the removal of the parts needed for “expediency” and with the limitation of patent rights under Bayh-Dole. A Bayh-Dole patent is a limited rights patent. Consider Bayh-Dole in light of federal patent law, of which it is a part. Look at 35 USC 261. Think about what the compliance bits at 37 CFR 401 do. Nothing there about transfer or utilization but for restrictions. No incentives, no funding help, no visibility. What a screwy law.

Okay. We’ve stopped. Relieved?

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